VietJet looks to expand into the long haul low cost sector with Brisbane-Ho Chi Minh service

VietJet Air is aiming to become the sixth airline with long haul low cost services from Australia and the second LCC in the Australia-Vietnam market.

Summary

VietJet aims to launch services from Ho Chi Minh to Brisbane in 2019;

VietJet is in line to become the seventh long haul LCC serving the Australia market;

There are currently 24 long haul low cost routes from Australia but only one originates in Brisbane;

VietJet has been looking at acquiring widebody aircraft to support the launch of services to Australia and the US.

VietJet and Brisbane Airport announced at the Routes Asia event in Brisbane in Mar-2018, a commitment from VietJet to launch nonstop services from Ho Chi Minh in 2019. VietJet has not yet provided a specific launch date or stated which aircraft type would be used on the new Brisbane-Ho Chi Minh route. VietJet currently only operates A320 family narrowbody aircraft but has been looking at acquiring widebody aircraft which would could be used to launch long haul routes to Australia and the US.

VietJet will become the sixth airline with long haul low cost services from Australia. The five LCCs currently operating long haul services from Australia are AirAsia X, Beijing Capital, Cebu Pacific Air, Jetstar Airways and Scoot. Jetstar was a pioneer with the current generation of the long haul low cost model, launching widebody operations in 2006.

AirAsia X launched services to Australia in 2007 followed by Scoot in 2012, Cebu Pacific in 2014 and Beijing Capital in 2016. Australia was the first destination for both Malaysia-based AirAsia X and Singapore-based Scoot.

There are currently 24 long haul low cost routes (at least 4000km) from Australia. Jetstar is the leader with 15 routes followed by four for AirAsia X, three for Scoot, two for Beijing Capital and one for Cebu Pacific. Melbourne-Singapore is the only route with two long haul LCC competitors – Jetstar and Scoot.

Cebu Pacific will add a second Australia route in Aug-2018 as it launches Melbourne-Manila, resulting in 25 long haul low cost routes in the Australian market. Brisbane-Ho Chi Minh, if launched, will become the 26th long haul low cost route from Australia.

VietJet will become the first foreign long haul LCC in the Brisbane market. Brisbane currently has only one long haul low cost destination, Bali, which is served by Jetstar.

Melbourne has a leading nine long haul LCC routes (and will have 10 after Manila is launched) while Sydney now has eight long haul LCC routes. Gold Coast currently has three long haul LCC routes, Cairns has two and Perth has one. (Perth-Kuala Lumpur falls under the long haul low cost category as it is over 4000km while Perth-Bali and Perth-Singapore are under 4000km and therefore are not considered long haul routes.)

Brisbane-Ho Chi Minh will be the third long haul low cost route in the Australia-Vietnam market. Jetstar launched services from both Melbourne and Sydney to Ho Chi Minh in May-2017. Jetstar previously served Sydney-Ho Chi Minh from 2006, when it launched long haul operations, to 2008.

VietJet’s entrance in the Australia-Vietnam market could result in overcapacity. Vietnam Airlines also expanded in Australia in 2017 with the launch of Sydney-Hanoi, supplementing existing services from Sydney and Melbourne to Ho Chi Minh. Vietnam Airlines has looked over the last few years at launching Brisbane but is unlikely to make a move if VietJet follows through on its commitment to Brisbane Airport.

It is hard to say with certainty that VietJet will launch services to Brisbane in 2019 given the that it has previously announced commitments to new international routes without following up and launching the route. For example, in Sep-2014 VietJet announced plans to serve Vladivostok in Russia but has still not launched the route.

There have also been multiple delays in VietJet’s evaluation of widebody aircraft. The LCC initially intended to select a widebody aircraft type in 2014 and begin long haul operations in 2015. VietJet is now again evaluating A330neos, A350s and 787s.

While VietJet executives have recently stated it intends to move forward with the acquisition of widebody aircraft this year, it is hard to know for certain this will actually happen given that several times it has shelved plans to add a long-haul operation. A further postponement would be sensible given the costs associated with adding a new aircraft type and high risk associated with launching new long-haul routes. VietJet has plenty of much less riskier opportunities for expansion closer to home.